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Hospital project linked to subprime pain

Melbourne media reports that a project to build a new Royal Children’s Hospital could be indirectly affected by the US subprime crisis revolve around the downgrading of a US insurer.

In the past week all three major ratings agencies have reduced the ratings of New York-based FGIC Corporation and its subsidiaries to “junk” status. The Herald-Sun says FGIC has insured the bonds issued to investors in the $850 million hospital construction funding package.

The credit quality of the hospital project bonds have now also been downgraded, with the Victorian Government facing the possibility of having to pay out the debt if the project hits financial trouble.

Last week FGIC initiated a lawsuit in New York against several companies that it alleges fraudulently induced it to issue a financial guaranty policy for a collateralised debt obligation linked to a subprime account that is, according to Fitch Ratings, “deteriorating rapidly”.

The company has told the New York Insurance Commission that it will now rebuild and concentrate on lower-risk business.